Forum

Will Myanmar’s military exit the political stage?

East Asia Forum - 5 hours 32 min ago

Author: Adam P. MacDonald, Halifax, Canada

Over three million Burmese have signed a petition by Myanmar’s main opposition party, the National League for Democracy (NLD), urging immediate constitutional revision. A significant cause for protest has been the political powers afforded to the country’s military, the Tatmadaw, by the constitution.

Although the petition demonstrates the direction in which many want the country to go, such actions are unlikely to force the generals’ hand. Aware of the dramatic changes to the state and society that the military has introduced over the last five years, and their subsequent new role in the political architecture, the generals remain unwilling to fully relinquish control.

What will promote the military’s withdrawal from politics? Is the military leadership determined to play a perpetual political role? It appears so, based on comments by Senior-General Min Aung Hlaing justifying such involvement. Article 6 of the constitution also allows ‘the Defence Services to be able to participate in the National political leadership role of the State’.

But there are important signs that the military is at least entertaining the thought of reform — both internally and in their relationship with the state.

The Tatmadaw, despite the transfer of power to a nominally civilian government following the 2010 elections, carefully cordoned off certain areas under its exclusive purview: security portfolios, guaranteed representation in cabinet and parliament, and a veto over constitutional change. The guarding of these selective powers, which stands in contrast to other widespread changes to the state and society, is promoted by an entrenched praetorian ethos which has been at the forefront of the military’s history of political involvement: a belief that they alone have the ability to determine who rules and how, which has usually meant themselves.

Since the construction of the new political system, however, their role has changed significantly.

Most importantly, the military generals have become ‘guardians’ or ‘mediators’ instead of direct rulers. They remain interested and powerful political actors but have retrenched from many areas of governance and administration — and by and large they allow the political architecture to function free from any interference other than their constitutional representation. And, though there remains a large number of military (current and retired) personalities running the state, there appears to be a formal demarcation between the military, as an organisation focused on national defence, and the political apparatus responsible for the governance of the state. This distinction did not exist during the previous junta-led regime where politics and the military were indistinguishable.

The Tatmadaw, furthermore, is retreating not only from the political sphere (albeit selectively) but also from other important sectors as well. Economically, the monopolies enjoyed by the Tatmadaw’s two conglomerates — the Union of Myanmar Economic Holdings and the Myanmar Economic Corporation — are waning as the economy continues to liberalise. The generals are contemplating the companies’ eventual privatisation if not total disbandment.

Within the security sector, the Myanmar Police Force is slowly developing the competencies of a professional security service focused on law and order, part of a power shift from ‘green (army) to blue (police)’. The military has even accepted a reduction in their budget allocation, not in real dollar terms but as a percentage of the national revenue (from approximately 20 per cent to 12 per cent) — though this still dwarfs other departments such as health and education.

Significantly, military concerns about allowing the new polity to evolve have relaxed, as threat perceptions of civilian opposition parties, ethnic groups and Western states have changed. The softening of these previously antagonistic relationships, furthermore, neutralises the national security narrative commonly employed to justify the military’s political involvement.

The recent appointment of General Maung Maung Ohn as the Chief Administrator of the restive Arakan State (centre of the ongoing violence between Burmans and Rohingya Muslims), though, demonstrates the potency of such a rationale reifying their political role. Feeling less threatened is an important development but does not necessarily mean that the military now views these groups as equal partners or potential political leaders.

Perhaps the greatest surprise has been the calculated opening of relations with the West and their militaries. US Undersecretary of State for Democracy, Human Rights and Labor Tom Malinowski recently met with Senior-General Min Aung Hlaing. Also, US Pacific Command Deputy Commander Lieutenant-General Crotchfield gave a lecture to the Myanmar National Defense College promoting the legitimacy and benefits of civilian rule and control of the military. These events may not convince the Tatmadaw senior leadership to change their attitudes right away, but they do demonstrate a new willingness to hold such discussions.

The military’s removal from politics is essential for a strong democratic system to take root in Myanmar. For the NLD, their focus should be on winning in the current system (despite its flaws and biases in favour of the military-supported political entities) and then on moving to change the constitutional rules of the game.

If the civilian NLD assumes power, as is likely, the military will want to retain their political position even more. So, it is expected that the 2015 elections will produce a truly hybrid civilian-military government. Such an arrangement would usher in a new era in civil–military relations, facilitating needed changes such as greater civilian competency and legitimacy in security matters, discussions on military reporting to parliament, developing pension systems for military members and eventually addressing the Tatmadaw’s history of rule.

This will take time.

It may take a new generation of military and civilian leaders, working within this new configuration, for a lasting and permanent demarcation between them to emerge. A slow and gradual reconfiguration of responsibilities and identities would be the most effective route to enact such changes and ensure the wider reform and transition process remains on track.

Adam P. MacDonald is an independent researcher based in Halifax, Canada.

Categories: Forum

Indonesia has to make hard decisions on debt

East Asia Forum - 17 hours 32 min ago

Author: Peter McCawley, ANU

Indonesia’s next president will need significant funds to fulfil election promises. But both candidates Joko Widodo (Jokowi) and Prabowo Subianto have expressed caution about international borrowings.

So should Indonesia undertake the risks of borrowing from overseas? There is little consensus among Indonesian policymakers. The issue is a difficult and sensitive one, but what is the right course of action?

The case for government borrowing from overseas seems straightforward and persuasive — international capital markets are awash with liquidity and interest rates are at record lows. Also, Indonesia urgently needs funds to support new investments.

But how much should Indonesia borrow? The answer, in principle, is simple. Indonesia should keep borrowing — many billions of dollars if appropriate — so long as the rate of return on investment comfortably exceeds the cost of borrowing. If, for example, the Indonesian government can borrow in international capital markets at 6 per cent per year and investments at home have a return of 10 per cent per year, then surely Indonesia should keep borrowing.

Yet a ‘fear of borrowing’ is widespread across the political and policymaking elite in Indonesia.

The basic case for international borrowings rests on several assumptions. First, that the terms of borrowing (including the costs of borrowing and other conditions) are attractive. Second, that the funds can be used well, especially by investing in good projects at home. Third, that there are no problematic financial or other worrying risks in issuing debt.

Opponents of international borrowing in Indonesia say that none of these assumptions can be relied upon. They argue that the risk to Indonesia of raising large scale borrowings overseas is just too great.

For one thing, opponents of government borrowing point to the hidden costs of international borrowings. They point to the foreign exchange rate risks — arguing that while current costs of borrowing in US dollars are quite low, uncertainty and danger will arise if there is a significant depreciation of the Indonesian rupiah. The repayments in US dollars, they point out, will soon become quite onerous and perhaps they have a point.

The Indonesian rupiah has fallen significantly in the past few years — from around Rp9800 to the US dollar in mid-2011 to around Rp12,000 in recent months. So it seems true that there are considerable foreign exchange rate risks for Indonesia in borrowing from overseas.

Also, it isn’t always clear that the borrowed funds will be used to support good projects. There is a real risk that borrowed funds will be frittered away on disappointing white elephant projects. And there is, worryingly, a marked shortage of well-prepared projects in Indonesia. Some of the projects that have been mentioned in recent years have been slow to get off the mark. There has been talk, for example, of a very ambitious Sunda Strait Bridge project to provide road and rail links across from Java to Sumatra. This project would cost at least US$20 billion   and would be by far the largest single infrastructure project ever undertaken in Indonesia. As such, it would seem to be a suitable project to finance with official borrowings from overseas. Yet so far, despite much talk and repeated presidential promises, the plans for the bridge have gone nowhere.

Another worry about international borrowings is that financial complications will arise which could ultimately drag the government into negotiations about sour international debts. Senior Indonesian policymakers point to two bitter experiences that Indonesia has had with debt reschedulings.

One was in 1975 when a major debt crisis  occurred following the Pertamina crisis. The crisis broke out when it was revealed that the state-owned oil company Pertamina had gone on an undisclosed borrowing spree in international markets. The president director of Pertamina, Dr Ibnu Sutowo, had approved the borrowings of large amounts of short-term funds. The borrowings had been used to invest in longer-term projects, but Sutowo had not foreseen any repayment problems because he had assumed that Pertamina’s short-term debts could be continually refinanced in international markets.

But when, in the wake of the 1973–74 international ‘oil shock’, international capital markets suddenly dried up, Pertamina was faced with a cash-flow crisis. Eventually the problem was solved — but not without significant pain and damage to Indonesia’s standing in the international community.

It took years for Indonesia to build up credibility again in international financial markets.

More recently, the borrowing and debt problems that contributed to the 1997–98 Asian financial crisis in Indonesia imposed huge economic costs. In the midst of the Asian financial crisis Indonesia’s GDP fell by over 10 per cent in 1998 causing widespread unemployment and leading to a sharp increase in the national poverty rate. Recovery from the crisis was slow. It was not until almost a decade later that national income per person climbed once again to the pre-crisis level.

Although the benefits to be gained from a well-designed and successful international borrowing program are large for Indonesia, the risks are large as well. It is understandable that many policymakers are cautious. They are keen to see Indonesia invest in much-needed infrastructure but they have bitter memories from the past — it’s a hard choice.

Peter McCawley is a Visiting Fellow at the Crawford School of Public Policy, The Australian National University.

Categories: Forum

Village democracy shrugs in rural China

East Asia Forum - Mon, 07/21/2014 - 17:00

Author: Bryan Ho, University of Macau

Lauded as one of the most significant political reforms in post-Mao China, village elections in rural China have received considerable attention since the promulgation of the Organic Law of Villagers’ Committees.

The law, first trialled in 1988–1998, is an attempt to allow villagers to elect their own local leaders in China’s lowest-level political unit. The village is beyond the government’s sanctioned institutional establishment, which stops at the town and township level. However, the Party retains strong influence over village deliberations and politics through village party committees.

With Deng Xiaoping, Peng Zhen and other reformers at the helm, the law underwent a ‘tug-of-war’ with conservatives through the 1980s before finally seeing the light of day. As China opened up and marketisation surged ahead, the former three-tier institutional structure — team, brigade and commune — proved untenable for meeting the needs of rural society in the face of rapid economic and socio-political changes. Corruption, administrative malfeasance and cadre’s exaction and arbitrariness aggravated relations between cadres and the wider population.

Following the 1989 Tiananmen incident, the implementation of village elections, although momentarily stalled, proved a strategic move by the Chinese Communist Party (CCP) in assuaging the damage to the regime’s legitimacy. The ‘creeping’ democratisation that began at the grassroots level was never a policy response to the demands of the general populace at the local level. It was an attempt by the party-state to rein in control on rural society — where the majority of the population still resided, in the 1990s, in over one million villages — given its inevitable retreat due to gradual marketisation.

The initial phase of elections in the early 1990s was unsatisfactory in terms of democratic criteria: nomination and the process of electing local cadres. There was strong resistance to organic law by the Organisation Department of the CCP and local town and village (party) cadres. Rigged elections were common as cadres feared losing power and authority to those elected with a mandate to fight for villagers’ rights and welfare. Elected officials, who did not belong to the power structure of the CCP, may not have listened to the dictate of higher-level authority, namely the town/township government or party branch, in implementing unpopular state policies, such as birth control and tax collection.

Mid-level officials in the Ministry of Civil Affairs (MoCA), however, adopted a two-pronged approach to implementing elections. First, they pushed for elections to be implemented, regardless of imperfections, and then later fine-tuned them to meet democratic criteria and procedures. Meanwhile, with the support of reformers at the centre, MoCA officials were able to work with international organisations, including the Ford Foundation and the Carter Center, to learn more about holding democratic elections. Foreign dignitaries and researchers were also arranged to visit China’s show-case village election sites.

After 10 years of implementation, the organic law on village elections was revised and made permanent in November 1998. Elections were made mandatory in Chinese villages every three years and villagers’ committees (VC) of three to seven members were set up throughout the country with a VC director, deputy director and members.

Although implementing elections has generally been successful, some problems have also emerged. Irregularities in elections such vote-buying and bribery are common. In some villages, rich men, triad (secret societies) members or individuals strong lineage or clan predominate over elections and village committees. Rural protests over issues such as land sales and compensation from cadres and petitions to the central government in Beijing are still rampant, as corruption and the arbitrariness of local cadres remain serious problems in an era of reform. There is no definite conclusion on the extent to which grassroots democratisation has brought about better governance, despite revisions made to the organic law to improve the ‘technical’ aspects of VC management.

Yet, some studies show spillover effects from implementing the organic law. Villagers developed a more rights-conscious mentality as they have used the law in defence of their interests, and in defiance of local predatory state and authoritarian or recalcitrant cadres to challenge arbitrary rules and violations of villagers’ rights to free and fair election, land sale or usage and welfare.

Elites in the central government have openly stated their objections to Western style liberal democracy. In the 1990s, some experiments with local elections at the town/township level were halted by the central authorities and pronounced as unconstitutional. By early 2000, the prospect of a linear progression to democracy had evaporated.

Since the Jiang Zemin era, the principle of yijiantiao— the holding of concurrent appointment by the village party branch secretary — has become the norm in Chinese villages. The organic law formally affirmed and declared the dominant role of the village party secretary and party branch as the core leadership institution in rural society. VCs are thus mostly led by the village party secretary, who is also likely to be the elected leader.

Pro-democracy protests — with public assemblies in over a dozen Chinese cities — in early 2011 were inspired by and named after the Jasmine Revolution in Tunisia. The Chinese government took swift action in dealing with the protesters. Shortly afterward, the collaboration between MoCA and the Carter Center on election watch and exchange was also halted.

The Chinese government is fully aware of the implications of colour revolution and liberal ideology which could be anathema to its continual rule. For the moment, electoral participation in village elections serves the clear purpose to improve village governance. And democracy is seen as a means for better economic development and stability.

The autonomy of village self-rule is granted, but within the parameters of party-state control. The Organic Law of Villagers’ Committees serves as a means for the party state to consolidate its rule and control over rural society. Villagers are ‘brought in’ to keep an eye on local cadres who fail to meet public and central government expectations — seemingly, the nascent process of democratisation in rural China has come to a standstill.

Bryan Ho is an Assistant Professor in the Department of Government & Public Administration, Faculty of Social Sciences, University of Macau.

 

Categories: Forum

G20 should facilitate international cooperation on climate change

East Asia Forum - Mon, 07/21/2014 - 05:00

Author: Ross Garnaut, University of Melbourne

The time is right to place climate change at centre stage of the 2014 G20 leaders-group meeting in Australia. The G20 has a record of leadership on the international climate change agenda. With the world working toward a critical meeting of the United Nations Framework Convention on Climate Change (UNFCCC) in Paris in December 2015, a firm position articulated by G20 leaders in Brisbane in November would be in time to influence the Lima UNFCCC meeting in December 2014.

The G20 is ideally suited as the main forum for overcoming the ‘free rider’ problem of collective action on climate change. It contains all of the world’s main greenhouse gas emitters and all the countries that are most important to effective global effort on climate change, as well as those that have been most active in in the UNFCCC. While the G20 contains the most influential developed and developing countries, it can stand outside the entrenched and stereotypical divisions that have become barriers to effective action within the UNFCCC, with its huge and unwieldy membership and traditions of symbolic posturing.

Climate change is not a new issue for the G20, nor is influence on formal decisions of the UNFCCC something new. At the 2009 Copenhagen climate convention, the G20 played an important role in establishing the objective of holding the contribution of human-induced climate change to 2 degrees Celsius. It formulated a strong position on removing fossil fuel subsidies, an important position that has seen some domestic reform worldwide, and one which should be reiterated. The G20 meeting in Russia in 2013 agreed to reduce hydrofluorocarbon emissions, under the Montreal Protocol, as a contribution to climate change mitigation. The G20 in Australia could agree to initiate negotiations at the next meeting of the Montreal Protocol’s Conference of the Parties.

The chances of the G20 playing an important role in accelerating momentum on international climate change action at this time have been improved by shifts in domestic policy in the United States and China. Over the five-year life of the G20, the governments of the world’s two largest economies and greenhouse gas emitters, have introduced major domestic programs to implement emissions-reduction targets that embody major changes in established trajectories. The pivotal importance of the Paris UNFCCC meeting in December 2015 makes the Lima meeting crucial to any prospects of the G20 being helpful to a strong outcome.

It must be said that there are also less happy portents for success. The new Australian government, the host of this year’s G20 heads of government meeting, is seeking to repeal legislation on domestic carbon pricing linked to international markets, although it has confirmed the previous government’s target of a 5 per cent unconditional reduction by 2020. It committed itself during the 2013 election campaign to strengthen the Australian target up to a reduction of 25 percent depending on what other countries were doing.

Overall, though, the G20 is well positioned to lead the development of a new style of collective action on climate change.

A system of international collective action can emerge in one of three ways: through the exercise of power by strong interests, through binding agreement, or through shared acceptance, by individual citizens or states, of constraints on decisions and behaviour. All three approaches have been important in early attempts to find a basis for effective global climate change mitigation. But as it became clear at the Copenhagen meeting that there would be no legally binding agreement on climate change mitigation for the foreseeable future, we are now seeing the gradual emergence of an international system built mainly on the third approach of shared norms. Norms are largely being shaped by emerging implicit agreements on what constitutes reasonable efforts by individual states, and by the recognition that free riding may incur costs in relations with other states, including market access.

The new approach carries some important features over from the early international discussions. Scientific cooperation remains centrally important to the collective effort. The objective of keeping atmospheric temperature increases to 2 degrees above preindustrial levels, mechanisms to measure and verify emissions, and instruments for international trade in entitlements have been developed or strengthened.

To ensure the effectiveness of this new approach — which I call concerted unilateral mitigation, with a ‘pledge and review’ system of targets determined by domestic political factors and external review from other countries — one major gap in the international regime needs to be filled. We require some framework to guide assessments of whether the level of mitigation undertaken in each country amounts to a fair share of an international effort to achieve the agreed global outcome. This would need to include guidance on adjusting targets for 2020, setting appropriate targets for 2030, and also setting long-term targets for low levels of global emissions in 2050.

It would be useful and probably necessary for heads of governments that are committed to strong global mitigation outcomes to appoint an independent expert group to develop a framework of this type to allocate the global effort among countries. Members would be appointed for their international standing in appropriate fields and would not represent individual countries or groups of countries. Their guidance would extend to indicative allocation of emissions reduction targets across countries, in the form of parameters for nationally appropriate mitigation action for developing countries. Within the context of concerted unilateral mitigation, each country would be free to accept or reject the guidance provided by such a framework. The framework would become a focus of international review of each country’s effort and would evolve in response to discussion and experience.

The G20 is well-placed to establish an expert group to develop this guidance. It could also play an important role in the pledge and review process, building on previous G20 mechanisms of peer reporting through expert groups. Alternatively, it could delegate the review and its interaction with the expert groups’ guidance on targets to a body established by the Major Economies Forum.

In some areas, the grouping’s role is less clear. For example, it is not obvious that the G20 will be able to do much to reduce US trade restrictions on natural gas. These restrictions are sometimes supported on the grounds that they are accelerating reductions in greenhouse gas emissions. They are certainly having this effect in the United States. But by elevating natural gas prices in East Asia — and in Australia and other countries that are supplying gas to East Asia — they are inhibiting emissions reductions outside the US. It would be more efficient, environmentally and economically, to have global free trade in natural gas. But the protection that export restrictions provide for domestic users has strong support, and despite the hopes of free traders, the G20 may be unable to do much to remove trade barriers in this area.

To take another example, there is only a weak case for G20 intervention to increase investment in the commercialisation of low-emissions technologies. While private firms are bound to underinvest in the research, development and commercialisation of new energy technologies, most countries are now finding their own reasons for investing in innovation in low-emissions technologies, so that it seems that voluntary domestic commitments would be able to manage the free rider problem.. It would, however, be productive for the G20 to establish a process for reporting on national efforts to show each country that other nations are making substantial contributions to generate international spillovers from investing in innovation in low-emissions technologies. The G20 could also usefully draw attention to the opportunities for choice of infrastructure investments to reduce the costs of the commercialisation of new low-emissions technologies.   

There is one other important role for the G20: increasing pressure for free trade in goods and services that are important inputs into activities that reduce greenhouse emissions, including such raw materials as uranium and natural gas, as well as in biofuel alternatives to fossil fuels and capital goods that generate renewable energy. This would fit the G20’s established interest in securing open trade on a global basis. There has been considerable discussion and some action within APEC, the WTO, and the Trans-Pacific Partnership of the importance of free trade in goods and services that are important to the global mitigation effort. The G20 heads of government meeting could focus attention on the environmental and the economic advantages of establishing free trade in important inputs, adding momentum to discussions in other forums.

Now is the right time for the G20 to become the centre of a strong international effort. The climate change issue is important enough to the economic and political life of the international community, the prospects and costs of failure of international collective action large enough, and the possibility of successful intervention high enough to make the increase in momentum in global climate change negotiations an important feature of the Brisbane summit.

Ross Garnaut is a Professorial Research Fellow in Economics at The University of Melbourne.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘The G20 summit at five’.

Categories: Forum

China’s control over the South China Sea

East Asia Forum - Sun, 07/20/2014 - 19:48

Author: Peter Drysdale, Editor, East Asia Forum

Last week China announced that it was towing away a giant oil rig from waters disputed with Vietnam, ahead of the onset of the typhoon season and after finding signs of oil and gas, at the same time insisting it stood firm on maritime claims that have sparked disputes with its neighbours — and warned it could return.

China deployed the US$1 billion rig in early May in waters close to the Paracel Islands in the South China Sea, in waters that Vietnam considers to be within its 200-nautical-mile exclusive economic zone. The move sparked deadly riots in Vietnam, and a tense stand-off in the waters themselves, with Vietnamese and Chinese ships ramming each other on a regular basis and with one Vietnamese fishing boat sunk.

China occupies the disputed Paracel Islands and says it has ‘historical claims’ to a large part of the South China Sea, including waters that are much closer to other nations, although these claims are yet to be put to international arbitration or resolved bilaterally.

China’s assertion of its maritime claims in the South and East China Seas has affected China’s relations with the United States, which counts many of the rival claimants to the waters as allies or friends, and excited anxieties in a number of countries, not only those directly involved in the territorial disputes, throughout the region.

Washington called the deployment of the rig a ‘provocative’ move and has called for all countries to observe a freeze on building works and other actions on disputed islands and reefs in the South China Sea that might disturb the status quo. China has rejected this suggestion and has urged the United States to ‘stop taking sides’ in the disputes, a position to which the United States insists that it adheres.

The withdrawal of the Chinese oil rig from the waters in dispute with Vietnam, while it had been foreshadowed by Beijing and forecast by cool-headed analysts from the beginning, was greeted with outrage among some Chinese netizens who saw the move as a shameful national back-down, and, by some outside China, as evidence of the collective success in applying pressure against Chinese aggressiveness. Neither view is founded on objective reality.

And yet, from the standpoint of objective reality, it is difficult to understand exactly how the problem of these territorial disputes has so rapidly roiled relations across the South China Seas. One on-the-ground analyst in Beijing when asked from Vietnam for an assessment of the Chinese mood in response the troubles with Vietnam at the height of the oil rig crisis described it as ‘serious but bemused’, a response that surprised but one that probably captured better than most just where China was coming from in its management of these issues.

In this week’s feature, Sourabh Gupta points out that ‘China’s legal claim to sovereign rights and jurisdiction in the South China Sea, which asserts an entitlement to exclusive economic zone (EEZ) and continental shelf rights over the relevant waters, is not inconsistent with international law. “Islands”, as low-lying as Japan’s Okinotorishima, as small as the US Howland and Baker Islands, and as remote from a continental coastline as Australia’s Heard and McDonald Islands have valid or pending EEZ claims. None are inhabited or can sustain economic activity. What Beijing has (yet) to clarify nevertheless is both the scope of its “relevant waters” claim line as well as this line’s association with the “historic rights” that it appears to enforce at times to the limits of the infamous “nine-dash” line’.

The Law of the Sea, Gupta argues, is an unsatisfactory guide to referee quarrels that reside at the crossroads of disputed sovereignty claims and competing sovereign rights and jurisdiction claims.

What people have lost track of, Gupta points out, is that, while the Chinese might take recourse to punitive means, their ends are less typically threatening. The Chinese are less concerned with the ownership issue than neutralising the ownership issue and sharing the bounty of its extended economic zone. China would not have sought to strike a resource sharing deal with Japan in the East China Sea along the hypothetical median line in 2008 if it really intended to own it all. Of course, first the politics of it all must be got right in Chinese eyes. But, clearly you don’t go to war over something which you do not intend to ultimately possess or are easily able to defend.

There has been much hyperventilation about that prospect because of the disturbances to the status quo in the South (and East China) Seas from the usual suspects all sides round. The objective reality recommends a more measured assessment and approach. This includes a growing understanding in China that it has a neighbourhood problem that will only be dealt with successfully if there is rapid elevation of cooperative diplomacy on a number of fronts. There are practised modes (to which China has been party), in which these interests can be negotiated with the help of (though not the luxury of simple reliance on) the law of the sea and they are likely to lead to more productive outcomes all round.

The United States has an awkward responsibility in managing its alliances and partnerships in the region, at the same time as ensuring it is not wrong-footed in its relationship with China. While its ‘freeze’ proposals will not immediately satisfy China and the management of its interests with its neighbours in the region, it could prove a path towards ‘cooling’ these issues and creating the space for engaging with China in more productive regional diplomacy, for which the scene has now been set, at the ARF and the ASEAN plus ministerial level meetings over the coming weeks.

Peter Drysdale is Editor of the East Asia Forum.

Categories: Forum

Murky waters surround the rule of law in the South China Sea

East Asia Forum - Sun, 07/20/2014 - 05:00

Author: Sourabh Gupta, Samuels International

The air is thick with calls for the rule of law to be observed in the East and South China Seas. ‘Japan for the rule of law, Asia for the rule of law, and the rule of law for all of us’, Shinzo Abe said at the Shangri-La Dialogue earlier this year. Nations, he observed — and by which he meant China — must make claims that are faithful in light of international law and resolve them peacefully.

China’s legal claim to sovereign rights and jurisdiction in the South China Sea, which asserts an entitlement to exclusive economic zone (EEZ) and continental shelf rights over the relevant waters, is not inconsistent with international law. ‘Islands’ as low-lying as Japan’s Okinotorishima, as small as the US Howland and Baker Islands, and as remote from a continental coastline as Australia’s Heard and McDonald Islands have valid or pending EEZ claims. None are inhabited or can sustain economic activity. What Beijing has to clarify nevertheless is both the scope of its ‘relevant waters’ claim line as well as this line’s association with the ‘historic rights’ that it appears to enforce at times to the limits of the infamous ‘nine-dash’ line.

China has opted out of the compulsory binding dispute settlement provisions of UNCLOS for certain categories of disputes, but this is not exceptional. Numerous states have done so and when or if the US accedes to UNCLOS, it too intends to opt out of these categories of disputes.

The proximate cause of Abe’s declaration was the unilateral placement of a drilling rig owned by a Chinese state-owned oil company in the contiguous zone of a Beijing-administered island in the Paracels chain. The Chinese action is not illegal, nor is there anything new in the disregard for Article 123 of UNCLOS, which encourages relevant states to cooperate. International oil companies are active in disputed stretches of the South China Sea where claimant states have unilaterally granted prospecting rights in areas deemed to reside on their side of the median line. China’s drilling is exceptional only to the extent that the oil rig was positioned in a disputed stretch of water that is generated from a land feature, the Paracels, which is itself in dispute.

No precedent exists in authorising stays on such drilling. The Law of the Sea, furthermore, is an unsatisfactory guide to referee quarrels that reside at the crossroads of disputed sovereignty claims and competing sovereign rights and jurisdiction claims.

Jurisdiction rights over maritime areas emanate from sovereignty over the land territory of a coastal state. So long as they are naturally formed and rise above sea level at high tide, islands are considered land territory and, in the case of the Paracel Islands, can generate a maritime zone halfway to the opposite Vietnamese coast. Japan deems the disputed Senkaku/Diaoyu Islands, the largest of which is smaller than its Paracels counterpart, to generate an entitlement up to the median line from the opposite Chinese coast.

It is much less well known that customary law makes no differentiation in the criteria required for continental landmasses and islands — however small — to generate a zone. The (undisputed) Vietnamese continental landmass and the (disputed) Paracel Islands have equal standing in the eyes of the law to generate such an entitlement. Tribunals have been disinclined to weigh in, limiting their disapproval to instances where small, far-removed islands reach deep into an adjacent or opposite state’s coastal projection and impose an inequitable ‘cut-off’ effect of that state’s maritime entitlement. The Paracels do not significantly impair Vietnam’s (or Hainan’s) coastal projection.

Without a legal challenge to determine either the Paracels’ final sovereignty or a delimited boundary in these waters, there cannot be a resolution of the competing sovereign rights and jurisdiction question. Hanoi won’t consent to the former for fear of having to permanently surrender its claim to the Paracels, while Beijing won’t consent to the latter for fear that a delimitation will permanently limit its sovereign rights in the relevant waters to (much) less than the median line.

That said, it is frankly inconceivable that a court would establish a boundary that cuts through the contiguous zone of the Paracels and thereby strip China of jurisdiction in waters that UNCLOS properly deems as also falling within the law enforcement remit of the sovereign or administering power.

Until such time as China and Vietnam are able to consensually devise mechanisms to jointly develop the contested seabed resources — pending or without prejudice to delimitation — both parties must respect the median line and limit enforcement operations to their respective sides. Hanoi’s challenges across the median line are imprudent, risk violent reprisals (as has been the case previously) and invite similar interference on its side of the median line.

The multitude of legalities aside, searching political questions are in order for all claimants — and non-claimants — concerned.

There is no pressing reason why China must develop resources in this doubly-disputed area of the South China Sea unilaterally. Either Beijing’s political calculus of deterrence, which extracts too steep a premium in good neighbourliness, must change or it should lay out its outer continental shelf claims with precision. In the interim, it should provisionally refrain from drilling, much like Japan in the Senkaku/Diaoyu area.

For the other claimants, can shrewd diplomacy match the technological, budgetary and law enforcement might that Beijing can summon to lock up the resources in the ‘doughnut hole’ of the South China Sea to which it also has a rightful claim? Non-claimants may evince concern but they are unlikely to have much appetite to extend their security obligations to slivers of insignificant territory.

For Japan or its friends to censure Chinese unilateralism while turning a blind eye to similar, or worse, behaviour by other claimants is disingenuous. It cannot be that China is guilty of, both harassment across the median line and resisting harassment on its side of the median line. To claim further that it takes no position on the competing sovereignty claims is doubly disingenuous. As per the territorial provisions of the San Francisco Treaty (Articles 2 and 26), then-prime minister Yoshida ‘renounced all right, title and claim to … the Spratley Islands and the Paracel Islands’ to the Republic of China in Taipei in 1952.

The rule of law in the contested semi-enclosed seas of Asia needs to be constructed on a foundation that is objective, fair and equitable.

Sourabh Gupta is a Senior Research Associate at Samuels International.

Categories: Forum

China’s growing assertiveness transforms Japan’s security policy

East Asia Forum - Sat, 07/19/2014 - 05:00

Author: Jennifer Lind, Dartmouth College

Japan’s Prime Minister Shinzo Abe announced on 1 July a decision to reinterpret the Japanese constitution, allowing Tokyo to militarily support partners that are under attack. Former prime minister Zenko Suzuki would approve. In 1981, Suzuki became the first Japanese leader to use the word ‘alliance’ to describe Japan’s relationship with the United States. The seemingly innocuous word sounded alarmingly militaristic to many Japanese who, since their country’s defeat in World War II, have been skittish of rearmament and involvement in overseas military operations.

The most recent change in Japanese defence policy is both remarkable and routine. It is remarkable to see Japan embracing what had been politically unthinkable. Yet the decision is routine in that it marks one of many such milestones in the country’s evolving security posture.

After World War II, the Japanese constitution imposed severe restrictions on security policy. Article 9 of the constitution declares: ‘Land, sea and air forces, as well as other war potential, will never be maintained’. In the aftermath of a defeat that left millions dead, the country’s cities in ashes and sovereignty in the hands of the United States, Japan’s people embraced Article 9 — and the country’s political left vowed never again to go to war. The Japanese also feared entanglement in the Cold War and the hot wars of its US ally. Article 9 provided Japan with an institutional sanctuary from American adventures in Korea, Taiwan, Vietnam and the Persian Gulf.

Yet reinterpretation of Article 9 began before the ink was dry on the constitution.

Many Japanese conservatives — some resentful of Japan’s perceived emasculation, some fearful of US abandonment and others nostalgic for lost grandeur — wanted Japan to play a greater military role. Japan’s moderate pro-alliance conservatives were supported by Washington, which was continually pressuring Tokyo to acquire more defence capabilities and engage in a wider array of alliance missions.

So, despite the constitution, Japanese leaders created the Self-Defense Forces (SDF) in 1954, reinterpreting Article 9 as permitting military forces for defensive purposes. The 1954 law prevented the SDF from being dispatched overseas. But this too would later change. In the wake of US and global censure of Japan for its perceived free riding in the first Gulf War, Tokyo passed the Peacekeeping Operations Law in 1992 which permitted the overseas deployment of the SDF, albeit under highly restrictive conditions. For example, SDF peacekeepers could not be armed or sent to an area with ongoing hostilities.

Over time, Japan passed more milestones, loosening additional military constraints. In 2006, Tokyo elevated the Japan Defense Agency to a more politically influential Ministry of Defense, discarding previous restrictions on the policymaking influence of the Japanese military. Japan’s 1967 Arms Export Ban, which was adopted to rein in a feared military–industrial complex, was relaxed earlier this year.

Tokyo has also acquired military capabilities that were previously seen as taboo.

A 1969 Diet resolution prevented Japan from using space for military purposes. But Japan jettisoned this restriction in 1998 after North Korea lobbed a rocket over its territory, prompting Tokyo to acquire military satellites. And, although aircraft carriers were long seen as power-projection forces prohibited by the constitution, last year the SDF acquired the Izumo-class helicopter destroyer (which in any other country’s fleet would be called an aircraft carrier). Over the years, several Japanese leaders have argued that nuclear weapons are consistent with Article 9, laying the groundwork for Japan to obtain those weapons.

But Japan’s gradual relaxation of defence constraints should in no way suggest that the country is rearming with intent to once again commit aggression in East Asia.

Japan is a responsible democracy. Its citizens remain committed to peace and wary of involving their country in overseas military operations. In fact, when announcing the reinterpretation of Article 9, Abe emphasised that his government would need legislative approval before the SDF could be sent to support an ally under attack. Clearly, Japan’s postwar evolution is not a recidivist’s inexorable march toward aggression.

An important lesson from Japan’s post-World War II history is that Tokyo has reinterpreted and reformed its laws in keeping with changing strategic conditions. A worrisome Soviet naval buildup in East Asia in the late 1970s led Suzuki (and his successor, Yasuhiro Nakasone) to move closer to the United States. Similarly, today China is modernising its navy and behaving with growing assertiveness in its territorial disputes as well as challenging US military access to East Asia. Tokyo is responding both by embracing the US–Japan alliance and by accepting more defence roles.

Japan’s adoption of new roles and capabilities has been neither automatic nor straightforward. Deep-seated antimilitarism prompted outrage against Suzuki in 1981 and motivated protesters in Tokyo to condemn Abe’s recent announcement. But, as the Japanese perceive growing menace from Chinese capabilities and behaviour, this recent milestone in Japan’s security evolution will not be the last.

Jennifer Lind is an associate professor of government at Dartmouth College. She is the author of Sorry States: Apologies in International Politics (Cornell University Press, 2008).

This article first appeared here on Aljazeera America.

Categories: Forum

An immovable object and an unstoppable force: the Uyghurs and Beijing

East Asia Forum - Fri, 07/18/2014 - 17:00

Author: Mubashar Hasan, Griffith University

China’s Xinjiang Autonomous Region is experiencing, yet again, deep unrest and unease. News headlines have been dominated by violent clashes between Chinese police and some sections of the Uyghur population — recently a police building in Xinjiang province was bombed and 13 Uyghur activists shot dead in the aftermath. To comprehend the persistent tensions between the Chinese administration, managed by the dominant Han ethnic group, and Uyghur Muslims, one must consider historical tensions and both the strategic and economic significance of Xinjiang.

Of China’s 20 million Muslims (spread across ten ethnic groups), the Turkic-speaking Uyghurs, in particular, have long been subjected to state-sponsored persecution in relation to their practice of Islam and the preservation of their culture. Constituting about 45 per cent of Xinjiang’s population, this ethnic group is seen as a threat to mainland China’s political interests.

The Chinese government has reason to be wary of Uyghur independence movements. Twice last century, in 1933–1934 and 1944–1949, Uyghurs declared independence and established the short-lived Islamic Republic of East Turkestan. On both occasions China was able to re-establish its control, but it is understandable that the current Chinese administration is apprehensive about those in Xinjiang and elsewhere who hold nostalgia for past phases of independence and dreams of renewed liberation.

Following these independence movements, and during the Cultural Revolution, Muslims in China found their religion stigmatised and outlawed. Uyghur religious leaders were persecuted, imprisoned and even killed. All Islamic worship and religious education was targeted by the communist regime. Daily religious utterances, including Insha’Allah (God willing) and Alhamdulillah (thanks given to God) resulted in persecution.

Presently, critics of the Chinese government argue that contemporary Beijing has not changed its position regarding the suppression of Muslims. Beijing’s recent decision to ban Ramadan fasting among government officials and students in Xinjiang province may provide further evidential support to Beijing’s critics. But the government routinely denies any charges of religious suppression in Xinjiang or anywhere else. At best, there is the perception among Muslims that official Chinese denials of persecution are hollow.

For example, during the US-led war on terror, according to Amnesty International, thousands of Uyghurs were jailed and sentenced without a fair public trial. They were accused of ‘terrorism, separatism and religious extremism’. This was seen as a politically motivated move by the Chinese government to undermine Uyghur independence movements. In November 2001, the then UN High Commissioner for Human Rights, Mary Robinson, was quick to warn China not to capitalise on the American-led campaign against terrorism ‘as a pretext to suppress ethnic minorities’.

Xinjiang bears immense strategic importance for China. It covers one-sixth of the total area of China’s territory and constitutes a strategic border region for the country. Xinjiang constitutes economic borders with Pakistan, India, Tajikistan, Kyrgyzstan, Kazakhstan, Mongolia and Russia. And domestically Xinjiang holds a significant border with Tibet, another region troubled by ethnic unrest.

Xinjiang is also where the Chinese military develops, and has previously tested, nuclear weapons. Thus maintaining security in this region is a priority for Beijing. This significance manifested itself publicly in 2009 when, during the July riots, the then Chinese president, Hu Jintao, left the G8 summit in Italy and returned to China to address the issue.

Finally, resource endowments make Xinjiang a strategic region for Beijing’s long-term economic interests. Presently, this region contains China’s biggest natural gas reserve and a 4000 km gas pipeline connecting Xinjiang to Shanghai. Xinjiang also hosts lucrative reserves of coal and oil. The oil fields at Karamay in Xinjiang are among the largest in China and the region has extensive deposits of silver, copper, lead, nitrates, gold, and zinc. It is, in other words, one of the key arteries of the Chinese economy.

These factors collectively explain why the Chinese government has sought to maintain its control of the region. One policy has been to encourage mass Han migration to Xinjiang; a tactical move to see Han Chinese outnumber ethnic Uyghurs. In the early years of the PRC millions of Han Chinese were forcibly relocated to Xinjiang to work on state farms and in the mining and oil industries.

More recently, up until late-2000, millions of Han Chinese were reportedly still being offered subsidies to relocate to Xinjiang. As a result, according to The Guardian, ‘the proportion of Han Chinese inhabitants rose from 6 per cent in 1949 to about 40 per cent by 2000 and migrants had begun to spread from cities into rural areas, where they found themselves in competition with Uyghur communities for water and land’.

One problem here is that the Han Chinese population are the primary beneficiaries of government funded projects. Such patterns of state discrimination fuel the frustration felt by the already marginalised Uyghurs, who believe that they are indigenous to Xinjiang and that Beijing is intentionally marginalising them.

The recent clashes and riots are therefore evidence of an outburst of longstanding frustration by Uyghurs. Unless China is willing to pursue a more nuanced, diplomatic and inclusive approach to integrate Uyghurs, and Uyghurs choose to deal with the Chinese administration through civil and political channels, we can expect to see further clashes in the Xinjiang province over the coming years.

Mubashar Hasan is a PhD Candidate at the School of Government and IR, Griffith University, Australia. He is also the founder of alochonaa.com, a politics, culture and IR blog.

Categories: Forum

BCIM Corridor a game changer for South Asian trade

East Asia Forum - Fri, 07/18/2014 - 05:00

Authors: Pravakar Sahoo and Abhirup Bhunia, Institute of Economic Growth

The Bangladesh–China–India–Myanmar (BCIM) Economic Corridor will increase socioeconomic development and trade in South Asia. The initiative seeks to improve connectivity and infrastructure, energy resources, agriculture, and trade and investment. It will connect India’s Northeast, Bangladesh, Myanmar, and the Chinese province of Yunnan through a network of roads, railways, waterways, and airways under a proper regulatory framework. The current focus of BCIM talks is on an inter-regional road network. This makes sense, as roads are the cheapest route of trade.

The BCIM Economic Corridor is a modern version of the Silk Road, and a revision of the 1999 Track II Kunming initiative between BCIM countries. It is planned to run from China’s Kunming province to Kolkata in India, and link Mandalay in Myanmar and Dhaka and Chittagong in Bangladesh. BCIM initiatives have gained momentum since Chinese Premier Li Keqiang’s visit to India and the conclusion of the first official meeting of the joint study group of the BCIM Economic Corridor on 19 December 2013.

In 2005, trade between Bangladesh, China, India, and Myanmar was 7.99 per cent of world trade. Since then, trade has grown both within the region and with outside countries, driven by China (and to a lesser degree, India).

Together, the BCIM countries account for 9 per cent of the global landmass and 40 per cent of the global population. The combined population of India’s Northeast, China’s Yunnan province, Bangladesh, and Myanmar is 440 million. Intra-regional trade among BCIM member states amounted to 5 per cent of total BCIM trade in 2012, as opposed to ASEAN, where 35 per cent of total trade is intra-regional. The BCIM Corridor will allow all four countries to exploit existing complementarities in trade — in terms of both sectors and products. Myanmar is a primary goods exporter and has abundant cheap labour. India has positioned itself as a leading services exporter. China is the largest manufacturing exporter in the world; and Bangladesh, like many other South Asian countries, engages in both services export and low-end manufactured goods.

Given the immense conventional and renewable energy resources in the region, one aspiration of the Corridor is collaboration in the power sector. BCIM sub-regional cooperation can capitalise on hydrocarbons in Bangladesh, hydro-electric and mineral resources in Northeast India, natural gas reserves in Myanmar, and coal reserves in East Indian states like Odisha, Chhattisgarh and Jharkhand and China’s Yunnan province. The potential for Northeast India to export energy to power-starved Bangladesh under the auspices of BCIM’s institutional structure is particularly strong. Energy cooperation among BCIM countries will have implications for China, the largest consumer of energy. India’s engagement with Myanmar will contribute to India’s energy security as India is currently heavily dependent on Gulf oil imports. Myanmar will also be able to engage in export diversification, as it is currently over-reliant on China and Thailand for energy exports.

The BCIM Corridor aims to promote trade and investment in the region through trade facilitation measures and greater participation of the public and private sectors. It is likely to encourage further interest by Chinese and Indian firms in Myanmar. An upgrade of the 312 kilometre stretch of Stilwell Road, which connects Northeast India with Yunnan through northern Myanmar, could lower transportation costs between India and China by 30 per cent and escalate already growing Sino–Indian trade through the BCIM Corridor. Yunnan and West Bengal can cooperate in sectors like agro-processing. The fact that the capitals of the two provinces, Kunming and Kolkata, are the two ends of the BCIM Corridor only adds to prospects for greater exchange.

Bangladesh, with which India shares its longest border, could connect the Northeast to the rest of India. Access to the large Indian and Chinese markets will make Bangladesh an attractive destination for foreign direct investment. Bangladesh can also benefit from connecting to China through Myanmar and becoming a commercial hub for South and Southeast Asia. Indian goods will also benefit from access to large markets in East Asia through Myanmar. The BCIM corridor, by creating trading opportunities for Myanmar, will help the country integrate into regional supply chains. In fact, the Dawei port in Myanmar, thanks to its strategic geographical position, could be a means to increase the country’s international integration.

Empirical studies suggest that improving transport infrastructure could have a direct bearing on the social and economic development of other sub-regions in Asia — for example, the Greater Mekong sub-region. Given the historical and cultural commonalities, as well as institutional overlaps, between the BCIM and the GMS, the same result is expected in the former as well.

The BCIM Corridor is a win-win arrangement. The linkages of transport, energy, and telecommunications networks will enable the region to emerge as a thriving economic belt that will promote social development of communities along the Corridor. To date, South Asia has not come close to enjoying the same economic success that East Asia has reaped. BCIM might well be the game changer that South Asia needs.

Pravakar Sahoo is Associate Professor at the Institute of Economic Growth.

Abhirup Bhunia is a researcher at the Institute of Economic Growth.

Categories: Forum

Behind North Korea’s hospital curtain

East Asia Forum - Thu, 07/17/2014 - 17:00

Author: Eun Jeong Soh, ANU

Health care has been a successful area of international cooperation for North Korea. Yet, there has been little discussion of daily health care practices, which remain largely hidden outside of the formal health care system. How much is known, for instance, about what people in North Korea do when their children fall ill?

According to the World Health Organization’s (WHO) Country Cooperation Strategy: DPRK, published in 2009, chronic malnutrition and growth stunting in children under the age of five continues at a concerning rate. Due to the consequent susceptibility to communicable and non-communicable diseases, the demand for medical services is high. Yet, the degradation of health infrastructure, lack of transportation services and unreliable electricity and water supplies are all obstacles to accessing health care in North Korea.

At the same time, North Korea has had a lower child mortality rate, higher immunisation and maternal care access rates, and a higher number of health workers (300,000) than many Southeast Asian countries, according to official data acquired by WHO. But while North Korea maintains large health institutions and perhaps too many health workers, basic resources are lacking.

In contrast to a number of incremental changes toward marketisation — which the government inevitably adopted — Pyongyang has emphasised its intention to maintain completely free and socialised health and education sectors. As a result, despite lacking the resources to provide for the country’s over 700 hospitals and over 6000 clinics, privatisation and decentralisation in the health care sector has been minimal. There have been reports of privately owned and financed pharmacies in the streets of major cities and in a number of hospitals. Nevertheless, health workers are generally reluctant to seek outside resources directly and autonomously for fear of getting into trouble.

Under this peculiar context, informal health care practices — such as informal payments, a black market for medicines and home-practicing doctors — have developed. In a study conducted by the United States Institute of Peace, 90 per cent of respondents admitted to having made informal payments to doctors and that purchasing medications on the black market was common. Interviews with defectors resettling in Seoul confirm this trend. People have learned to treat themselves at home using antibiotics, glass syringes bought from the black market and herbal or traditional medicines. Doctors and pharmacists have created informal referral networks based on a sense of mutual trust in each other’s expertise and competence.

Another noticeable phenomenon is the emergence of home-practicing doctors. Patients have come to prefer private house doctors — out of both convenience and trust — over hospitals where one has to bring everything from medicines to meals. Such practices are illegal but not uncommon. Even in the old days, given the close doctor-patient relationship fostered by the North Korean-style free health care system, people in emergency situations visited doctors’ homes.

How health workers and patients have coped with the decline of hospitals, and the strategies and relationships that have emerged, is based on norms and practices that were fostered by the ethos of North Korea’s free socialist health care system: to engage closely with and dedicate oneself to patients.

But informal health care practices in North Korea show both aspects of the emergence of capitalism as well as the continuation of pre-existing norms and habits.

While the WHO Action Plan — designed to tackle and reduce health care burdens — is essential, aid providers should consider the prevalence of informal health practices that have developed under the declining capacity of the country’s formal health care system.

One strategy that they might consider would be to cooperate more closely with individual hospitals in a sustainable manner, assisting them to be self-reliant by donating appropriate scales of medicine, equipment and infrastructure.

Health care provides a constructive avenue for the international community to engage with North Korea. But, external aid agencies could make their aid more effective and relevant through innovative strategies that give greater consideration to the informal nature of the vast majority of health care practices in the country.

Eun Jeong Soh is a post-doctoral fellow at the ANU College of Asia and the Pacific. Her research interests include health management and market and trade activities in North Korea.

Categories: Forum

Chinese financial assistance to boost intra-regional trade in South Asia

East Asia Forum - Thu, 07/17/2014 - 05:00

Author: Saman Kelegama, IPS

Since the mid-2000s, the South Asian region has witnessed an incoming wave of Chinese financial assistance. In some South Asian countries like Sri Lanka, China has overtaken traditional donors by highly engaging in post-war infrastructure development activities. So China’s engagement in South Asia creates both opportunity and uncertainty for India and its neighbours. The question remains: will intra-regional trade increase, if so, at what cost to the region?

China has been engaged in a number of bridge development projects in Bangladesh, as well as the development of power plants, communications and roads in Pakistan. It has also played a key role in developing sea ports in Pakistan (Gwadar), Bangladesh (Chittagong) and Sri Lanka (Hambantota). Such development work has gone a long way towards enhancing the production base, supply capacity and local connectivity of non-Indian South Asian countries.

Weak supply capacity has prevented small South Asian countries from tapping the growing Indian market via the South Asian Free Trade Area (SAFTA) or the existing free trade agreements. Chinese financial assistance will thus indirectly contribute to stimulating more intra-regional trade in the South Asian Association of Regional Cooperation (SAARC).

The SAARC is the main body for governing South Asian regionalism. Over its 29 years, the SAARC has had some achievements, but in economic areas like trade and investment SAARC’s record remains far from satisfactory. Intra-regional trade still accounts for only 6 per cent of trade despite 10 years of regional trade stimulus by the SAARC Preferential Trade Agreement (SAPTA) and eight years by SAFTA. Trade in services is also low and the progress of SATIS (South Asia Trade in Services), which came into operation in 2010, has been uneven and slow. Further, intra-regional investment remains low — below 5 per cent — as smaller South Asian countries are yet to fully exploit the growing Indian market.

The role of Japanese foreign direct investment (FDI) in stimulating intra-regional trade in ASEAN in the 1980s is a useful example for China and South Asia. Japanese FDI funded the manufacture and assembly of industrial components and the final products in various ASEAN countries. In this process, the investment-trade nexus received a stimulus to generate greater intra-regional trade in ASEAN — currently hovering around 25 per cent.

South Asia was expecting a similar wave of Japanese investment in the 1990s to stimulate regional trade, but it never eventuated. Japanese investors considered the South Asian region too risky to do business. When Indian investment was flowing out in the 2000s, there was an expectation that neighbouring countries would benefit from large Indian investment, consequently stimulating intra-regional trade — but this did not eventuate either. Most Indian FDI went to destinations outside South Asia.

The current financial assistance based entry of China to South Asia has some similarities with the FDI based entry of Japan to East Asia in the 1980s. China’s investment in infrastructure projects, however, takes longer than FDI to deliver results in terms of increasing intra-regional trade. Still, from a SAARC regional perspective, Chinese financial assistance, in the absence of other large foreign capital inflows, is a welcome, long-term stimulant for regional integration.

Over the years, China has been involved in a number of key trade bodies in South Asia. Examples include China seeking ‘Dialogue Partner’ status in 2000 in the Indian Ocean Rim Association (IORA) and, in 2001, seeking membership in the Asia Pacific Trade Agreement (APTA). India, Sri Lanka and Bangladesh are all members of both IORA and APTA.

More recent examples include China seeking ‘Observer Status’ in SAARC in 2007, initiating the annual Kunming Trade Fair for South Asian trade promotion in 2007, and a dialogue with some SAARC countries to revive both the land and the maritime silk routes in 2013 and early 2014.

China’s involvement has allowed it to closely observe South Asia. This has increased its economic power in terms of trade and investment in the region, to the extent that today China is a larger trading power in the region than India.

Although it is debatable, it appears that India only became active in the SAARC after the bilateral economic ties between other South Asian countries and China started growing in importance. India’s unilateral gestures can be considered as some manifestation of this. Such actions include granting duty free market access to the Indian market for all SAARC ‘least developed countries’ in 2008, reducing the Indian ‘negative list’ to 25 items under SAFTA in 2011 and donating US$100 million to the ‘social window’ of the SAARC Development Fund in 2010. China’s engagement has spurred India into action, creating a new dynamic in the region.

However, the smaller South Asian countries should not overlook the political and security dimensions of China’s involvement. For centuries, South Asian countries have grown under the shadow of India and any external influence in the Indian geo-political space should be a concern for India. Already, there is a perception in India that China’s ‘string of pearls’ strategy and naval presence is encircling India. Smaller South Asian countries, while reaping the benefits of Chinese engagement, need to ensure that the geo-political scales are not tilted too much as to disturb the regional power balance. This remains the challenge for India’s neighbours in the coming years.

Saman Kelegama is Executive Director of the Institute of Policy Studies in Sri Lanka and Editor of theSouth Asia Economic Journal.

Categories: Forum

G20 must shape a new world trade regime

East Asia Forum - Wed, 07/16/2014 - 17:00

Authors: Mari Pangestu and David Nellor, Indonesia

Over the past decade global trade and investment discussions have moved far away from the formal global trade regime. The multilateral system has been mired in the Doha Development Round — defined by a single undertaking and a fixed agenda that is increasingly out-of-date. In the meantime, most countries have devoted their energies to regional trade and investment discussions.

The devolution of trade and investment discussions is prompted not only by frustration with the multilateral system but also by the needs of a dramatically changing trade structure. The existence of global value chains and a multipolar global economy changes the dynamics of trade and investment discussions. Moreover, a new set of concerns — ranging from food security to climate change — has emerged. These developments alone would pose significant challenges but, beyond that, there is a concern that even the more conservative assessments conclude that protectionism is on the rise.

The question is: what to do about it? The G20 needs to provide political leadership by defining and adopting a new global trade and investment regime that can respond to these challenges. The goal should be a free, fair, and open trade and investment regime that boosts growth, drives development and inclusiveness, and promotes sustainability. The principles, organisations, and processes within which trade and investment reform is motivated make up this global public good.

But instead of providing the requisite leadership, the G20 has been going in a different direction on trade. Repetitive references in G20 communiqués to completing the Doha round demonstrate that the G20 has no particular comparative advantage in negotiating specific trade measures. What is more, references to regional agreements and global value chains in the last two communiqués take the G20 in the wrong direction. They characterise the G20 as a forum for encouraging transparency and information exchange — all of which are welcome but are tasks that can be addressed in other fora, such as the OECD.

The proposal that the G20 deliver the public good of an improved global trade and investment regime fits well with its mandate and agenda. Since it assumed the mantle of leadership of the global economic and financial system in the midst of the global financial crisis, the G20 has focused on two areas: global growth and reform of global economic and financial architecture.

Trade and investment should be integral elements of both of these G20 priorities. Countries are encouraged to adopt unilateral measures in their trade and investment systems as part of their efforts in the comprehensive growth strategy. However, on the question of global economic and financial architecture, trade and investment have been kept to one side, especially in comparison to the focus on macroeconomic stability and the financial sector through the G20‘s major reform of the International Monetary Fund and the development banks.

What might a new architecture of the global trading system look like? One approach is a ‘multiple pathways’ framework: that is, a framework that recognises that multilateral objectives can be achieved by adopting best global practice while using a variety of paths including regional, sectoral, and plurilateral agreements.

ASEAN’s Regional Comprehensive Economic Partnership (RCEP) was designed with this multilateral best practice model in mind. RCEP spells out a set of principles to shape agreements under the partnership. The principles include open architecture norms, such as open accession, transparency, and best standards and practices.

The role and structure of a reformed World Trade Organisation in the ‘multiple pathways’ framework must be assessed. A WTO with a new mandate could play a constructive role in supporting best-practice regional and other agreements.

Against this background, the G20’s medium-term goal should be to deliver the new architecture. G20 members could agree to observe a set of principles that ensure consistency with an overall multilateral vision. The principles would be adopted ultimately in a reformed WTO framework. These principles and the retooled WTO would be what the G20 could deliver in the medium term.

The immediate task is to get the G20 on the right track on trade and investment issues. To achieve this, the G20 must recognise that its strength — and therefore its focus — should be on establishing a new regime, rather than delivering specific policy measures within the existing one.

The Brisbane Leaders’ Communiqué would set out the goal of strengthening the global trade regime. Leaders could announce the appointment of an Eminent Persons Group (EPG) comprised of highly regarded people in international governance, trade and other areas, tasked to make recommendations on the global trade regime and specifically on the principles to be observed by G20 members and on the design of the new, reformed WTO.

The EPG would be a ‘peer group’ for G20 Leaders from whom they hear respected and independent reform advice reflecting a global perspective. To accomplish this goal, the G20 should appoint a working group of G20 officials — led by a G20 sherpa — tasked with preparing terms of reference for the EPG. The composition of the working group reflects the need to move trade discussions beyond a trade negotiation to reflect the broader economic ‘wins’ of a stronger regime.

The G20 is effectively the guardian of the global economic and financial architecture. The world needs a far more robust trade and investment system and so it is incumbent on the G20 to deliver the essential global public good of a new trade and investment regime.

Mari Pangestu is the Minister of Tourism and Creative Economy, Indonesia. She was the Minister of Trade of Indonesia from October 2004 to October 2011.

David Nellor is a Jakarta-based consultant. 

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘The G20 summit at five’.

Categories: Forum

Japan and the art of un-apologising

East Asia Forum - Wed, 07/16/2014 - 05:00

Author: Tessa Morris-Suzuki, ANU

The Japanese government has long had difficulties coming up with effective apologies for the wartime misdeeds of the country’s military. For decades, while many ordinary Japanese grassroots groups worked tirelessly to right the wrongs of the past, the silence from the corridors of power in Tokyo was deafening.

But then in the 1990s all that changed, and the Japanese government issued a series of statements on the events of the war. Like official apologies elsewhere, these were not perfect. Turning words into deeds proved to be a challenge. But the apologies enhanced Japan’s standing in the eyes of the world; above all, they made a very big difference for many of the surviving victims.

Now the world is confronted with the spectacle of a Japanese government caught up in a contorted process of un-apologising.

The issue at stake is the 1993 Kono Declaration, an apology issued by then chief cabinet secretary Yohei Kono to the so-called ‘comfort women’, women who suffered terrible sexual and other abuse in an empire-wide network of wartime military brothels.

Sexual violence in war is not a problem unique to Japan. But the ‘comfort station’ system was remarkable in its size — tens of thousands of women were recruited. And there is abundant testimony from victims and others that many of the women were recruited by force or trickery.

The 1993 Kono Declaration was a forthright apology for these events. Though it focused particularly on South Korean women, it was also addressed to former ‘comfort women’ in other countries. It admitted that they were ‘recruited against their own will, through coaxing, coercion, and so on’ and ‘lived in misery at comfort stations under a coercive atmosphere’. It went on to promise that Japan would ‘forever engrave such issues in our memories through the study and teaching of history’.

The Japanese government refused to provide direct monetary compensation to former ‘comfort women’. But it did offer welfare and medical support, while ‘atonement money’ was paid from a non-governmental fund. This response, sadly, created divisions among the survivors: some welcomed the payments; others rejected them on the grounds that the Japanese state should pay direct compensation itself.

During the late 1990s, some Japanese history texts were extended to include a very brief mention of the ‘comfort women’ issue. But this aroused the ire of Japanese nationalists, who launched a fierce campaign for more ‘patriotic’ history education. All mention of the issue has now disappeared from textbooks, and the promise to engrave the issue in public memory has simply not been kept.

Meanwhile, the ‘comfort women’ issue has become a political football in both Japan and South Korea, being used by nationalists on both sides to enhance their popularity. In Japan some prominent conservative politicians launched fierce attacks on the Kono Declaration, which they regarded as an insult to the memory of Japan’s war dead.

Japan’s Prime Minister Shinzo Abe has always been uncomfortable with the declaration’s references to coercion. But Abe is also an eager supporter of Japan’s alliance with the US, and the US government, concerned to maintain good relations between Japan and South Korea, insists that Japan stand by the declaration.

This left the government with a dilemma: how to undo the words of the Kono Declaration without officially withdrawing the declaration. Here is the solution.

Step one: create a committee to ‘re-examine’ the process by which the apology was put together. Unsurprisingly, the government appointed committee found evidence that the Japanese and South Korean governments negotiated about the wording of the apology before it was released. This allows the apology to be presented not as a truly Japanese document, but as a compromise worked out by a Japanese government that lacked the will to stand up to pressure from South Korea.

Step two: cast doubt on the veracity of victims. The Japanese committee’s ‘re-examination’ of the Kono Declaration does this by stressing that some of the former ‘comfort women’ whose testimony was collected had ‘quite confused memories’ and that the Japanese government did not fact-check their stories.

Step three: define the word ‘force’ extremely narrowly, so that it applies only to situations where women were marched out of their homes at gunpoint by members of the Japanese military. This allows your committee to inform the world that, according to the studies conducted by Japan, it is ‘not possible to confirm that women were “forcefully recruited”’.

The result is the Japanese government can truthfully insist that it has not withdrawn the Kono Declaration, while very effectively demolishing its credibility.

Prime Minister Abe has repeatedly stated that the ‘comfort women’ issue should be left to the scholarly judgment of historians, but the government’s committee contained just one historian, Ikuhiko Hata, who had been campaigning for years to have the Kono Declaration rewritten.

Hata, who has made an art form of combing through the testimony of former ‘comfort women’ for any inconsistency that may cast doubt on their truthfulness, publicly predicts that the committee’s report is likely to make some Japanese people ‘so enraged that their hair will stand on end’ and ‘conclude that Japan was duped by South Korea’. ‘Maybe’, he adds, ‘a new public view will emerge that the Kono Declaration should be withdrawn’.

The next step, foreshadowed by the prime minister’s key political confidant, Koichi Hagiuda, may be official tours around the region to present the ‘facts’ revealed by the new committee report.

How Prime Minister Abe handles this issue in the future will be watched with great interest — and at least some discomfort.

Tessa Morris-Suzuki is an ARC Laureate Fellow based at the School of Culture, History and Language, at the College of Asia and the Pacific, The Australian National University.

This article was first posted here in the Canberra Times and here at the ANU College of Asia and the Pacific.

 

Categories: Forum

China gingerly taking the capital account liberalisation path

East Asia Forum - Tue, 07/15/2014 - 17:00

Author: Guonan Ma, Bruegel

The Chinese government recently pledged to substantially liberalise its still heavily regulated capital account. Since China is the number one trading nation, the second largest economy and a large net creditor, the world has a huge stake in how China manages its tricky transition from a state of binding capital controls to one of closer integration with the global financial market and system.

A natural starting point is, of course, where China currently stands in its financial integration with the rest of the world. How open financially is China when we compare it to its own recent past or its major emerging market peers like India?

To answer this question, Robert N. McCauley and I conducted a study by analysing eight measures of capital account openness (four price-based measures and four non-price ones). Our four price-based measures were based on the ‘law of one price’: the same financial asset should trade at about the same price in the onshore and offshore markets. The study covered the forward market, money market, bond market and stock market.

The non-price indicators involved macroeconomic openness, cross-border financial flows and positions, banking market integration and currency internationalisation.

The study shows that China has been financially less open than India on average over the past decade, contradicting the conventional wisdom and other, more widely known measures of financial openness. This may have a lot to do with a mix of the need to fund current account deficits in India; the greater rigour with which the capital controls are enforced in China; the long-standing multinational operations of Indian private firms that can arbitrage onshore and offshore markets; and a larger footprint of global banks in the Indian domestic banking market.

Both economies over the years have been advancing in their financial integration with the world, though in the wake of the global financial crisis China has been catching up with India. This in part could relate to the fact that emerging markets running current account deficits, like India, face a more binding external financing constraint, especially in a world of highly pro-cyclical and volatile capital flows. The policy-supported renminbi internationalisation in recent years has also punched holes in the Chinese wall of capital controls.

But both China and India still have quite some way to go in opening their financial markets to the outside world, suggesting that the task of capital opening is a real challenge. Controls of their capital accounts may be leaky but still bind substantially. This is true not only by comparison with advanced economies but also when measured against a benchmark of major emerging market economies.

The evidence indicates strong inward pressure on bond and bank flows in China upon full capital account opening, at least in the short term. This is because Chinese fixed income instruments have been cheaper onshore than offshore. This finding contrasts with consensus forecasts which have predicted that, over the medium term, China is likely to experience net private capital outflows under the channels of direct and portfolio investment. Also, our reading of net inflow pressure in the short term and the consensus reading of net outflow pressure over the medium term could imply that two-way capital flows can be highly volatile during the liberalisation process.

This implies three important things for Chinese policymakers.

Care needs to be taken when drawing lessons and insights from some of the freely available popular measures of financial openness. These do not reliably signal progress in capital account opening.

There must be careful monitoring of the risks that lie along the path of capital account liberalisation. Stronger and more transparent reporting and statistical systems should be put in place so that broad market positions and cross-border flows can be tracked in a timely and systematic fashion. In particular, bank flows need to be monitored closely and any seeming inconsistencies between national data and partner data like those compiled by the Bank for International Settlements need to be explained.

Finally, policymakers need to proactively manage the risks that come with liberalisation. A sustained increase in exchange rate variability ahead of substantial capital opening could serve to render the renminbi a less attractive carry-trade target. The widening of the permitted daily trading band of the renminbi — from plus or minus one per cent to plus or minus two per cent in March 2014 — might help ease short-term inflow pressure and facilitate the transition to medium-term net outflows upon full capital opening.

Guonan Ma is a visiting scholar at Bruegel, Brussels. This article is mostly based on his joint work with Robert McCauley.

Categories: Forum

Japan needs to rethink its Asian ‘diplomacy’

East Asia Forum - Tue, 07/15/2014 - 05:00

Author: Jean-Pierre Lehmann, IMD

There were many reasons behind Meiji Japan’s (1868–1912) astonishing rise from a feudal backwater to the only non-Western industrial and imperial power within the space of a few short decades. One indisputable reason was the quality of Japanese diplomacy.

After a relatively short period of heated debate as Western gunships threatened, Japan decided to abandon its two-century-old ‘closed country’ policy of isolation and to learn from and join the West. Japanese foreign policy developed two faces: an accommodating, smiling face towards the West and a threatening, scolding face towards Asia. This was encapsulated in the title of an 1885 publication — Datsu-A, Nyū-O (‘exit Asia, enter Europe’) — by the leading intellectual of Meiji Japan, Yukichi Fukuzawa. By the turn of the century, Japan had defeated China in war (1894–95) and become an equal ally of the greatest world power, Britain, when it signed the Anglo–Japanese Alliance in 1902.

In the 1930s, Japanese foreign policy erred in that it chose the wrong (that is, losing) Western ally, Nazi Germany. Both Germany and Japan committed atrocities at opposite ends of the Eurasian continent. But while Germany was severely punished and purged, Japan managed to escape both severe punishment and purges due to major geopolitical developments in East Asia, namely Chinese ‘liberation’ in 1949 and the Korean War of 1950–53.

Within a few short years following the devastating defeat of World War II, Japan experienced a phoenix-like recovery. This was due in part to skilful diplomacy, especially that of the highly capable and shrewd statesman Shigeru Yoshida.

Japan hitched its sail to the American mast and it was smooth sailing for decades after. The American-imposed constitution, in which ‘the Japanese people forever renounce war as a sovereign right of the nation’, and the US–Japan Security Treaty (1952) allowed Japan to focus on economic growth throughout the Cold War years. Diplomacy was not needed beyond occasionally assuaging hot American tempers when Japan’s trade surplus got ‘too big’.

But this century has proved turbulent as the centre of global geopolitical gravity has moved from the North Atlantic to the Western Pacific. Europe is in decline, the US is confused and Asia is back, especially with China rising as a great global power. The situation is complex, unpredictable and potentially explosive.

Japan proved diplomatically skilful in the past in managing and establishing alliances with Western powers, but it has never had an Asian ally. Furthermore, there is a racist undercurrent among some sections of Japanese society who tend to look down on ‘other’ Asians, as seen in the plight of the Korean minority in Japan.

Yet, with China’s meteoric rise there are understandable jitters among some of its neighbours, especially those in the South China Sea. For example, the Philippines sees its former conqueror, Japan, as less of a threat and more of a potential bulwark in its stand-off with China. The US is also keen to receive more robust military support from Japan. Thus, while the Abe government’s decision to ‘reinterpret’ the Constitution has been condemned by China and South Korea, it has been welcomed by some of the ASEAN countries and by the US.

In light of regional geopolitical conditions, Tokyo’s adoption of a more assertive military policy might seem justified, but it is occurring in a context of insensitive and aggressive rhetoric. Having ‘exited’ Asia in 1885, Japan has never ‘re-entered’. In contrast with Germany, the emotions and hatreds of World War II are kept at boiling point and repeatedly reignited by Japanese public figures.

For example, the recently appointed director general of NHK, Katsuto Momii, at his first press conference in January, remarked that ‘comfort women’ were nothing special as all countries resorted to the practice of military prostitution in times of war. And, in February, NHK board member Naoki Hyakuta denied the Nanjing massacre, saying it ‘never happened’. More recently in late June, the chairman of the Japanese company Alps, Masataka Kataoka, stated that Japan’s incursion into China in the 1930s was not an invasion, but intended to help the country rid itself of US and other colonial powers. These regular outpourings reflect something truly uniquely bizarre in the Japanese post-war national psyche.

Japanese officials complain that they have apologised enough for World War II — and it is true that there have been apologies over the years. But frequent provocative remarks by prominent public figures, such as those by Momii, Hyakuta and Kataoka, not to mention Prime Minister Abe’s visit to the Yasukuni Shrine, cast doubt on the sincerity of official apologies.

Japanese business, government and media leaders should learn that effective diplomacy means knowing when to speak and when to remain silent. If there were fewer incendiary statements about World War II, East Asia would be less of a tinder-box, the prospect of war would rescind and the world might feel like a safer place.

Jean-Pierre Lehmann is Emeritus Professor of IMD, Switzerland, Founder of The Evian Group, visiting professor at Hong Kong University and NIIT University in India.

Categories: Forum

TPPing over?

East Asia Forum - Mon, 07/14/2014 - 17:00

Author: Jayant Menon, ADB

Why is the Trans-Pacific Partnership (TPP) taking so long to conclude? It has already missed three deadlines, the latest being October 2013. And President Barack Obama’s recent Asia visit did not produce the widely anticipated push towards the finish line. And what will the TPP will look like when finally concluded? Despite WikiLeaks’ best efforts, the negotiations are walled by secrecy. Will the TPP be the comprehensive twenty-first century agreement proponents tout? Or will it wallow as a watered-down compromise, riddled with exemptions, as detractors predict?

A useful starting point in explaining the delay is to look at the countries involved. In 2005, four small open economies — New Zealand, Chile, Brunei and Singapore — began talking about a free trade agreement. It began to grab headlines when the US embraced the TPP in 2009 as part of its ‘pivot to Asia’. Four other nations joined discussions soon after — Australia, Peru, Vietnam and Malaysia — followed by Canada, Mexico and Japan.

These 12 countries are a highly diverse group by any measure. First, unlike other plurilateral cooperation agreements, the TPP is widely dispersed geographically. There is nothing regional about it, with members from four of the world’s seven continents. And it is just as economically diverse. Australia’s per capita income is about 40 times that of Vietnam. The US economy is around 1000 times the size of Brunei. All this diversity suggests finding common ground when negotiating would not be easy.

Of course, the TPP delays are overshadowed by another struggling proposed trade pact — the WTO’s Doha Round. Although there are fewer countries in the TPP compared to the WTO, diversity is not a linear function of the number of countries involved. Where a group includes countries as varied as Vietnam, Mexico, Peru and the US, there is not only a lack of commonality in negotiating positions but negotiators may not even subscribe to broadly similar principles.

Now add to this a wide-ranging, highly ambitious agenda to be tackled as a single undertaking. Because of its lofty ambitions, negotiating diversity can translate into staunch opposition and some items can fall into the ‘too hard’ category.

It is not that the TPP agenda is just highly ambitious — this would make negotiations difficult but worthwhile. But there is the sense of it being unfair. There has never been a plurilateral negotiation where the agenda appeared so skewed in favour of one party. The carrot being dangled is of course improved access to the huge US market, but half the members of the TPP already have an FTA in place with the US, and the rest are trying to conclude one, so the incremental benefit is likely to be small.

At a time when globalisation is blamed for growing inequalities within and across countries, policies seen as transferring enormous resources from consumers in poor countries to a few pharmaceutical multinationals, for example, will certainly face opposition. Similar concerns arise from developing countries when dealing with labour or environmental standards, often seen as an instrument of protection that cuts into their ability to compete. Just about everyone, except the US, is concerned about the investor-state dispute resolution mechanism, which allows corporations to sue governments. The same is true for the currency manipulation clause, which could be subject to manipulation itself. And the list goes on.

Amid all this concern, the hoped-for motivation for genuine reform — using legal commitments to an external agreement to overcome domestic lobbies (the so-called ‘hands are tied’ argument) — seems nowhere to be found. More recently one hears of compromise and flexibility, terms not heard publically during the initial negotiations. Japan made clear recently that it will not necessarily extend to all members the same concessions made to the US in agricultural market access.

It appears the TPP is degenerating into a series of bilateral deals, with a US–Japan agreement at its core. The challenge is, when the time comes, to present a series of bilateral deals as if they were one comprehensive agreement. So look out for a lot of ‘transition periods’ and other loopholes.

Recently, there has also been concern that it will not be concluded at all. With renewed uncertainty whether the Obama administration can secure Trade Promotion Authority to fast-track the process, other members may be reluctant to sign up. A final push is currently underway, timed to coincide with President Obama’s visit to Asia for the APEC Summit in November. Since this will require members to sign on without US fast-track assurance, it is just as likely that the announcement will involve South Korea’s accession rather than the TPP’s completion, which would also conveniently justify another long delay. The update at the conclusion of a 10-day informal negotiating round in Ottawa, Canada, that began on 3 July gave no indication as to whether countries made any progress and no information about when they may meet again.  In this case, however, no news is not good news.

If the TPP is deferred indefinitely or if concluded with a multitude of exemptions, more will be needed to serve the interests of its members. Even if the TPP succeeds, it cannot be the end-all as commercial relations of its members extend far beyond the confines of the group.

How then do we move forward? Short of resurrecting the WTO, the only option is for countries to take matters into their own hands — as they always have. Unilaterally multilateralising preferences is the only way forward. With two-thirds of TPP member imports — 80 per cent if the US is excluded — already covered or about to be covered by FTAs, expanding preferences to remaining countries should not encounter much resistance from FTA partners, not only because volumes are small but also due to preference erosion.

Jayant Menon is Lead Economist at the Office of Regional Economic Integration, Asian Development Bank, and Adjunct Fellow at the Arndt-Corden Department of Economics, The Australian National University. The views expressed in this paper are those of the author and do not necessarily reflect the views and policies of the Asian Development Bank, its Board of Governors or the governments they represent.

This is an abridged version of an article that first appeared in VoxEU.

Categories: Forum

Onus falls on G20 to manage political tensions

East Asia Forum - Mon, 07/14/2014 - 05:00

Author: Bruce Jones, Brookings

Five years have passed since the peak of the global financial crisis and the elevation of the G20 from a meeting of finance ministers to a meeting of leaders. The organisation has helped states to make substantial progress towards financial recovery, although there is still more work to be done on preventing the next financial crisis.

The geopolitical situation has begun to change, and not for the better.

Crises of a different type  —  geopolitical and security crises  —  could begin to affect the functions of the G20. While this does not mean that the G20 could or should take on foreign policy challenges, it does mean that the G20 needs to operate in more creative ways to deal with a changing geopolitical landscape.

Discussions of foreign policy and security have entered the G20 spectrum before  —  in 2012 the Mexican presidency held a foreign ministers’ meeting, and in 2013 the crisis in Syria forced foreign policy on to the agenda of Russia’s summit. But neither of these summits was able to move the needle on tough geopolitical and security issues. The Australian government has to confront the prospect that the Russia–West crisis over Ukraine is not likely to have subsided by the time of the Brisbane summit, and other crises — from the East China Sea to Egypt to Syria to North Korea  —  could also force themselves into the frame in November.

There is no question that a phase of mounting geopolitical tensions has begun. The Middle East is undergoing the violent process of revolution and counter-revolution that will likely last another half decade  —  possibly longer. Geopolitical strains are rising in Asia, where tensions between major economies could undermine the ability of some G20 members to cooperate within international fora. There are also tensions in a series of policy domains where governance mechanisms are comparatively weak, including cybersecurity, the broader domain of internet governance, maritime security, and energy security. And finally, the recent events in Ukraine highlight that geopolitical tensions in Europe and between the West and Russia are very real.

At the very least this suggests the need for an active agenda for managing geopolitical tensions. Is that a job for the G20? If the answer is no that begs the question: who else? The UN Security Council does not have all the players in it, and is a tool far better suited to operational crisis management than it is to processes that lower geopolitical tensions. And the G8 is too narrow. There is an argument to be made that the G20 may not be the place to go to ameliorate geopolitical tensions but, for now, it’s the only answer we have: where else can emerged and emerging powers come together to discuss pressing issues?

Still, the G20 must not give up its core agenda of economic recovery. On the contrary, the core agenda of the Australian G20 must surely be continued focus on sustained economic growth. However, the Australian G20 can concentrate its efforts on the financial issues, while at the same time innovating on foreign and security policy questions to contribute to a lowering of geopolitical tensions or the management of geopolitical crises.

There are two options within the G20 to do this: establish a foreign ministers’ track, or explore more innovative, less formal options. Specifically, for Brisbane, the Australian government should ask the leaders to bring with them to Brisbane a senior national security official. It should be left to individual leaders to decide who to bring with them — their foreign minister, their national security advisor, or their diplomatic advisor. The decision should be theirs, and perhaps influenced by the agenda.

Australia should also host an informal side event for these officials, chaired by either Australia’s national security advisor or the foreign minister. And at the time of inviting, the meeting should have no planned outcome — no statement, no communiqué; it should be an informal session.

But the Australian government should communicate to the G20 members, through informal channels, that it intends this informal session to be available in the case of a major crisis brewing which demands G20 leaders’ attention the way the Syria crisis did.

While the Australian government would inevitably face some pushback, it has deep enough relationships with all the critical players to weather criticism or concern should some G20 members be uncomfortable with this approach. There will be no advances in the management of geopolitical tensions without innovation and some risk taking, and the history of effective multilateralism tells us that middle powers, with close ties to the top powers, are best placed to play this role.

It is past time for the G20 to innovate in the domains of foreign policy and security, and find creative ways to contribute on the geopolitical side of things. The G20 may not be the perfect vehicle for that function but, for now, it is the only one available. And if the G20 does not ramp up efforts to forge the tools necessary to manage rising geopolitical tensions, it will find that the underlying relationships allowing the G20 to perform as it has — criticisms aside — on the financial and economic issues will begin to erode, putting the core functions of the G20 themselves in jeopardy. It is not too late to manage rising geopolitical tensions, and maintain a degree of stability in great power relations; the G20 has an important role to play.

Bruce Jones is Senior Fellow and Director of the Project on International Order and Strategy, the Brookings Institution, and Consulting Professor, Stanford University Freeman Spogli Institute for International Studies. He is also chair of the NYU Center on International Cooperation.

This article appeared in the most recent edition of the East Asia Forum Quarterly,‘The G20 summit at five’.

Categories: Forum

Indonesia’s democratic strength

East Asia Forum - Sun, 07/13/2014 - 19:00

Author: Peter Drysdale, Editor, East Asia Forum

Democracy has taken a battering in Southeast Asia in recent times, as Thailand, the region’s second-largest economy and one of its economic success stories over the past few decades, has fallen prey to yet another military coup. So it is with a mixture of pride and relief that Indonesia — the region’s largest economy, the world’s third-largest democracy, the world’s largest Muslim country and the epicentre of the ASEAN polity — is on the cusp of successful completion of the election of its new president and the deeper entrenchment of its democratic institutions. Whatever uncertainties remain until the last vote is counted and the result formally declared on 22 July, this is a great victory for the people of Indonesia and ASEAN, of which Indonesia is at the heart.

Continuation of the success of democratic transition in Indonesia is good news for the region and the world. Despite some disappointments with the Yudhoyono presidency, it saw Indonesia emerge on the world stage as a strong economy and with a confidence that restored coherence and direction to ASEAN’s regional centrality.

‘The all-but-certain defeat of ex-general Prabowo Subianto’, as Ed Aspinall describes it in our trifecta of leading commentators on Indonesia’s presidential election last week, ‘and the election of Jakarta governor Joko Widodo (Jokowi), represents not only the victory of one candidate over another but also the preservation of Indonesia’s post-Suharto democratic system — if only by the skin of its teeth’.

As Marcus Mietzner says in his analysis: ‘The contrast between the two candidates couldn’t have been starker: on one side was Prabowo, the tough-talking, populist former son-in-law of long-time autocrat Suharto, whose openly xenophobic rhetoric scared investors but attracted those segments of the Indonesian electorate longing for a firm leader; and on the other side was Jokowi, a man from humble origins who had made his way from a small furniture business in Solo in Central Java to the governor’s office in the capital Jakarta’.

The efficiency with which an election of the scale of the Indonesian contest was run ought to be a matter of national pride. Indonesia consists of more than 17,000 islands that stretch from Aceh in the west to West Papua on the border of Papua New Guinea in the east and cover three time zones. This is only the third time in history that the country voted directly to elect its president, in the world’s second-largest single-day election — India takes a month to elect its parliament and indirectly its prime minister; the United States chooses its electoral colleges and indirectly its president on a single day. The turnout appears to have been close to a whopping 80 per cent and running the poll passed without significant incident.

At the same time, Mietzner points out, the campaign was one with an edge to it — ‘one of the dirtiest election campaigns in Indonesian history’, he says. Prabowo was advised by American consultants, previously tutors to Republican candidates on how to drown out opponents in smear campaigns. Prabowo’s electoral machine spread false rumours that Jokowi was a Singaporean Chinese and a Christian. Jokowi, pushed onto the defensive by the bite of these attacks among Indonesia’s devout Muslim community, could never really develop his own narrative and platform. As a result, his once seemingly unassailable lead over Prabowo in the polls (in December 2013, he was ahead by 39 percentage points) melted away rapidly in a race that at the end was too close to call.

In the hours following the close of voting, it looked as though there was a narrow but clear victory for Jokowi, based on the now-established Indonesian practice of quite accurate exit poll surveys and quick counts conducted by the country’s increasingly sophisticated polling industry. These gave Jokowi a 4–5 per cent margin over his rival, Prabowo. Jokowi claimed victory. Prabowo followed suit, on the basis of other, more partisan polls, and set in train worries about a messy wrangle over the outcome.

Jokowi might have been well advised to wait on process or concession. Whatever the case, the Indonesian people have done their job, and as Andrew MacIntyre suggests, the country’s adjudicative institutions are now likely to prove up to the task up of doing theirs, in which case ‘this election will have constituted a bigger step forward in the country’s political evolution than any could have guessed’.

Even if he has won the presidential race, Prabowo’s allies hold a parliamentary majority and it will be difficult to govern with a parliamentary minority without securing the allegiance of opposition parties through offers of cabinet posts, transactional politics of the kind that Jokowi abhors.

So what can be expected of the new Indonesian presidency is still to unfold. Maintaining the momentum of strong economic growth and the entrenchment of social change will require bold new strategies. There is a worry that Indonesia might retreat from the challenge. Indonesia’s Southeast Asian neighbours look to Indonesian leadership to bed down the ASEAN Economic Community and East Asian regional initiatives in 2015. MacIntyre thinks, given the inward-looking nationalist mood in the country, that neither candidate would have been likely to introduce strongly market-strengthening reforms as they faced ‘the vexing challenge of passing legislation in a multi-party coalition environment’.

Could a Jokowi presidency surprise?

Certainly Jokowi is a new kind of Indonesian leader. He is a devout Muslim. In the three days before the election in which Indonesian law forbids campaigning, Jokowi made a lightening pilgrimage to Mecca. But he also embraces religious pluralism. Jokowi far outpolled Mr Prabowo among Indonesia’s religious minorities. He is a man of the streets and neighbourhoods, whereas past Indonesian leaders have ruled from on high. He has no ties to the Suharto regime, unlike most of his predecessors, and that will represent a major shift if he gains the presidency.

Jokowi has been underestimated before. Indonesia faces a new international economic and strategic circumstance and standing still will not be the easiest option. Indeed, his capacity to attract powerful technocratic advice could see Jokowi pursue a more proactive and internationalist agenda than his antecedents have led most to predict, if the final count gives him the top job.

Peter Drysdale is Editor of the East Asia Forum.

Categories: Forum

Indonesian democracy stronger, but not yet out of the danger zone

East Asia Forum - Sun, 07/13/2014 - 05:00

Author: Edward Aspinall, ANU

Last week’s presidential election will be remembered as one of the most significant events in Indonesia’s modern history. The all-but-certain defeat of ex-general Prabowo Subianto, and the election of Jakarta governor Joko Widodo (Jokowi), represents not only the victory of one candidate over another but also the preservation of Indonesia’s post-Suharto democratic system — if only by the skin of its teeth.

While there has been a broad political consensus for a decade and a half in Indonesia on the basic shape of the country’s political system, Prabowo Subianto this year posed a significant challenge to that consensus. Though he stated he was committed to democracy, he also called for a return to the country’s pre-democratic 1945 constitution, a document that places almost unfettered power in the hands of the president.

Prabowo described ‘strong leadership’ as the solution to all Indonesia’s problems, expressed thinly disguised contempt for the rest of the political elite and drew on a rabble-rousing populist style similar to authoritarian leaders from other times and places. His personal background, as one of the key hardline military generals in the dying days of the Suharto regime, and his bad human rights record, also signalled a major risk of authoritarian reversal should he take power.

Not surprisingly, therefore, the presidential contest of 2014 had echoes of another important turning point in recent Indonesian history: the struggle for democracy in 1998 that culminated in the resignation of then president Suharto. Indeed, Jokowi was himself a product of Indonesia’s democratic system, coming to national prominence as a result of direct elections of local leaders in Solo and Jakarta, and having an earthy popular style that is worlds away from the formality of elite players like Prabowo who are associated with the old regime.

Though Jokowi and his party mostly refused to portray the presidential contest as a struggle between democracy and authoritarianism — believing this would not resonate strongly among Jokowi’s supporters — many in Indonesia’s lively civil society did so. As a result, a huge and ramshackle network of volunteers (relawan) emerged to support the Jokowi campaign, including many pro-democracy activists who had been central to the campaign to bring down Suharto almost two decades ago.

This is not to say that 2014 was a simple reworking of the history of the 1998 democratic movement.

There were also key differences in the political alignments at play and in the resources available to those fighting to maintain Indonesia’s democratic system.

In the first place, a number of important political currents in Indonesian Islam that were involved in the anti-Suharto movement in 1998 as social organisations, student movements and the like — but which have since formed political parties of their own — this year lined up in support of Prabowo. For example, the National Mandate Party (PAN), a party with a strong base in the large Islamic organisation Muhammadiyah, supported Prabowo; its leader, Hatta Rajasa, was his vice-presidential candidate. PAN’s former leader, Amien Rais, had been a leader of the anti-Suharto movement in 1998 and was criticised by some commentators this year for supporting Prabowo.

On the other hand, the coalition that supported Jokowi also enjoyed some advantages that had been absent from the 1998 movement for democratic change. Among them was the remarkable reach of social media, which helped to organise Jokowi’s support base and to defend him against the character assassination that was such an important component of Prabowo’s campaign. The other was the penetration of more conventional electronic media, especially commercial television, throughout Indonesian society. Though several important television stations campaigned strongly for Prabowo in the lead-up to the poll, over the preceding year or so saturation television coverage had helped immensely to foster public support for Jokowi. This ultimately proved very hard to budge. Jokowi’s popularity was especially strong in rural areas and among poorer voters.

Nevertheless, the result was very close. We don’t yet have the final formal count, but all of Indonesia’s credible survey institutes have produced quick counts pointing to a victory in the vicinity of 52 per cent for Jokowi to 48 per cent for Prabowo. By Indonesian standards, this is a very narrow victory.

Meanwhile, Prabowo’s camp has sponsored fake quick counts that show he is in the lead, and he has claimed victory. Immediate concerns focus on the possibility that his supporters will try to manipulate the formal count.

A longer term worry is that he may never concede defeat and subsequently try to wreck Jokowi’s government — and Indonesian democracy — from the outside. Indonesian democracy is not yet out of danger.

Edward Aspinall is a professor of politics in the Department of Political and Social Change in the Australian National University’s School of International, Political and Strategic Studies, College of Asia and the Pacific. 

Categories: Forum

Indonesia’s presidential elections: Jokowi in, Prabowo out

East Asia Forum - Sat, 07/12/2014 - 22:00

Author: Marcus Mietzner, ANU
Indonesians went to the polls on 9 July to elect a successor to Indonesian president Susilo Bambang Yudhoyono, who had served two terms between 2004 and 2014 and thus was constitutionally barred from seeking re-election.

Two candidates stood in the elections, and the contrast between them couldn’t have been starker: on one side was Prabowo Subianto, the tough-talking, populist former son-in-law of long-time autocrat Suharto, whose openly xenophobic rhetoric scared investors but attracted those segments of the Indonesian electorate longing for a firm leader; and on the other side was Jokowo Widodo (Jokowi), a man from humble origins who had made his way from a small furniture business in Solo in Central Java to the governor’s office in the capital Jakarta.

The contest between these two men led to the dirtiest election campaign in Indonesian history. Advised by American consultants who previously had taught Republican candidates on how to drown out opponents in smear campaigns, Prabowo’s electoral machine spread false rumours that Jokowi was a Singaporean Chinese and a Christian. Jokowi, pushed into the defensive by the effectiveness of these attacks among Indonesia’s devout Muslim community, could never really develop his own narrative and platform. As a result, his once seemingly unassailable lead over Prabowo in the polls (in December 2013, he was ahead by 39 percentage points) melted away rapidly.

In the week before election day, the race was too close to call.

However, all credible quick count organisations declared Jokowi the winner of the elections on 9 July, with an average result of 52.5 to 47.5 per cent. Apparently, concerns about Prabowo’s human rights record as one of Suharto’s top generals, the ruthlessness of his campaign and his plans for dismantling Indonesia’s democratic institutions convinced a sufficiently large number of voters to throw their weight behind Jokowi.

Nevertheless, Prabowo refused to concede the election.

In the TV stations controlled by his political allies, Prabowo had quick count results published that showed him narrowly leading Jokowi. The four institutions Prabowo cited are either owned by his associates or funded by them, and have a long record of unreliability and partisanship. Prabowo, by pointing to these clearly manipulated quick counts, presumably aims to win time, as the Indonesian Electoral Commission will only announce its official result on or around 22 July. In the past, this official result has been almost identical to the quick counts done by the country’s established pollsters — the very institutions that have called the elections for Jokowi.

It is unlikely that Prabowo will be able to intervene in the official count in a way that could move an estimated three or four million votes — the amount necessary to secure victory for him. Should he unexpectedly succeed (by bribing election commission officials at various administrative levels), Indonesia would be in turmoil, with millions of Jokowi’s supporters certain to protest in the streets and demand the annulment of what would then have to be viewed as an illegitimate result. Such a scenario shouldn’t be ruled out completely, but it seems to be improbable at this point.

Much more plausible is that Jokowi and his running mate Jusuf Kalla will be sworn in as president and vice-president of Indonesia on 20 October 2014. This is an outcome that will preserve Indonesian democracy — a Prabowo victory, by contrast, would have led the country onto a path of political conflict, neo-authoritarian attacks and democratic regression.

Indonesia’s neighbours — including Australia — should also welcome Jokowi’s election. While he lacks the polished international experience of Yudhoyono, Jokowi is a rational and pragmatic politician, with whom most of Indonesia’s foreign partners will have no problems interacting. Prabowo, on the other hand, would have been highly unpredictable. Known for his short fuse and willingness to whip up nationalist sentiment if it suits his political agenda, Prabowo would have been a nightmare for the region.

This doesn’t mean, however, that Jokowi’s transition into the presidency will be smooth.

Jokowi’s campaign for the presidency — and the dramatic decline of his support in its final weeks — revealed significant divisions between him and his party, Megawati Sukarnoputri’s Indonesian Democratic Party of Struggle (PDI-P). These divisions are likely to dominate Jokowi’s first few years in office, with conflicts focusing on resources, positions and policies. Jokowi’s unwillingness to engage in traditional patronage politics has angered many in the party who hope that PDI-P’s return to power after ten years in opposition will benefit them materially.

Also, Jokowi will have to get used to the fact that ruling Indonesia is different from ruling Solo or Jakarta — something he refused to acknowledge throughout the campaign. And finally, he inherits an economy that needs urgent repair if it doesn’t want to fall behind its global competitors.

But whatever the problems are that Indonesia will face under Jokowi, they are preferable to the ones a Prabowo presidency would have brought upon this young and still vulnerable democracy.

Dr Marcus Mietzner is Associate Professor in the College of Asia and the Pacific, The Australian National University.

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